Social security and retirement reform: a second discussion paper

South African plans to complete and coordinate a social protection system

Published by: National Treasury, Government of South Africa, 2007
Via: Eldis

South Africa’s social security reform challenge is unusual in several respects. A redistributive social assistance programme is in place and there are well-established occupational and individual retirement funding schemes, but South Africa lacks a basic, pooled, mandatory contributory system. More than two-thirds of South Africans reach retirement age without a funded pension benefit and rely mainly on the social old age grant. Moreover, inadequacies in the wider social insurance framework lead families to rely on the old age grant or disability payments as a source of support for vulnerable children and grandchildren.

This discussion paper sets out the main proposals for a broad-based contributory social security system and improvements to the South African retirement fund industry. The broad principles proposed for reforms are the following:

• equity - fair and equitable rates of contribution and benefits for all participants
• pooling of risks - collective funding arrangements and non-discriminatory rules and entitlements
• mandatory participation - compulsory participation of employees and the self-employed in the formal sector, and encouragement of voluntary participation by those in the informal sector
• administrative efficiency - streamlined use of payroll-based contributions, modern information systems and efficient payment arrangements
• solidarity - minimum benefits assured through continued social assistance grants programmes financed through the budget

The government’s social security and retirement reform proposals are aimed at improving income-security arrangements in relation to these core criteria. The proposals take particular account of the challenge of improving coverage and income-replacement ratios for low-income earners, through the introduction of a cost effective, basic contributory social security system, to complement the redistributive social grants programmes. Alongside this initiative, regulatory and tax reforms to the occupational and individual retirement fund environment are aimed at improving its equity, efficiency and adequacy.

(http://www.treasury.gov.za/documents/budget/2007/Social%20security%20and%20retirement%20reform%20paper.pdf)